Kraft Heinz CEO optimistic that turnaround will come
As investors braced for the worst, food giant Kraft Heinz on Thursday offered something that might be a little bit easier to swallow — better earnings than analysts had been predicting and no plans to cut the company’s dividend despite a 5.1% drop in sales.
Kraft Heinz reported fourthquarter net income attributable to common shareholders of $182 million compared to a $12.6 billion loss in the same quarter a year earlier that was driven by a massive writedown of the value of some of the company’s most iconic brands.
On Thursday, Kraft Heinz noted another non-cash impairment charge of about $213 million related to the Maxwell House coffee trademark. But overall, things were more under control now, said officials at the company that claims dual headquarters in Pittsburgh and Chicago.
CEO Miguel Patricio conceded the most recent results were still disappointing, but said he was more optimistic than when he started in the job last year.
“We have taken critical actions over the past six months to re-establish visibility and control over the business,” he said in the company’s official earnings announcement, adding, “Our turnaround will take time, but we expect to make significant progress in 2020, laying a strong foundation for future growth.”
Earnings per share of 15 cents compared to a loss of $10.30 in the fourth quarter last year. Adjusted
for one-time impacts, Kraft Heinz reported earnings of 72 cents per share this year, above the 68 cents that analysts had been looking for.
Net sales of $6.5 billion, down from $6.9 billion last year, reflected hits from divestitures.
On a conference call with analysts, Mr. Patricio sketched out a strategy that involves dramatic cuts in research spending in 2020, with the goal of focusing innovation on flagship brands and those with the most potential for growth.
He also promised a 30% increase in marketing directly targeting consumers and noted that the company has been slimming down the number of distinct items for sale after seeing a surge following the Kraft Heinz merger.
The company was formed in 2015 with the merger of Pittsburgh-based H.J. Heinz and Illinoisbased Kraft Foods Group.
Mr. Patricio promised more details on his strategy in May. He acknowledged that mistakes have been made in recent years that left problems in customer service to clients and spurred employer turnover issues that management is now addressing.
In response to a question from an analyst on how this happened, the CEO sighed.
“I think the first two years after the merger of Kraft Heinz, there were a lot of synergies,” he said, noting the two separate companies had two chief executives, two headquarters and other things that are relatively obvious ways to trim costs.
“After two years, cutting becomes dangerous,” he said. “You cannot have a culture of cutting.”
He said productivity at the company fell in the past two years.
The company’s shares have been battered, too. At this time last year, Kraft Heinz shares were trading in the mid-$40s. They closed Wednesday at $30.04.
Some analysts had predicted Kraft Heinz might have to cut its dividend. The company’s statement Thursday that it was holding firm on the payments was meant to signal confidence in the future.
Kraft Heinz still has a powerful market position, Mr. Patricio noted, citing brands that can be found in households everywhere and operations in 40 countries.
And he believes new leadership and other changes being made will take advantage of that. “We believe the essential ingredients for our turnaround are now in place,” he said.
Investors seemed uncertain about that. In early trading Thursday, shares were down more than 8%. Shares closed the day at $27.77, down $2.27.